Tuesday, January 27, 2015

John Bogle on BFM

John Bogle, former CEO of Vanguard Fund or shall I say one of the most popular fund manager was interviewed on BFM two days ago.

While he is making Index Fund being popularised, shall I call it that one of the closest to index funds in Malaysia is EPF? When you are holding funds through EPF, you are basically buying closer to the Bursa Composite Index, as they typically holds almost all the larger companies in Bursa.

I do agree (if you listen to the interview) that the fees in Malaysia for unit trusts are way too high.

well index investing has been around for ages with low expense ratio and little churning reducing considerably the cost of holding on to these investment,the returns of index funds are higher than mutual funds (even in the USA)for a simple reason-mutual funds love churning or style drift incurring higher expense in addition to exorbitant mangement fees and reducing the returns for fund holders

anyway,in the long run no mutual funds has ever beaten the index. why pay the managers for returns not outperforming the index and have similar or lower returns than index linked funds ????.the average return on us stock market is about 9.6% minus inflation for the last 50-100 years

however,one needs a paradigm shift in investment strategy ie one need to hold on to the portfolio for 20-30 years rain or shine be4 being rewarded with returns for a comfortable retirement

in essence,refrain from punting in the market and work out one's reward/risk tolerance and invest for the long term

To be fair, the scenario of fund managers underperforming the index is very common in the western countries (especially the US) but not as much in Asian emerging markets.

Wall Street normally whack the share prices whenever they wanna buy/sell (which I dunno why), causing huge losses or loss of gains when they sell, or high average price when they buy. If you trade like this there's no way you can outperform the market. Only the first to move wins.

Whereas in Asia, fund managers tend to be slower in accumuldating/disposing shares. The markets are so ineffcient that fund managers can always find unnoticed stocks and patiently wait for others to eventually find out. All you need to do is research, research and research.

Buying index fund in the US makes a lot of sense, but not in Asian markets, unless if you are lazy to do research.

Agreed CF's point on index funds in Asia or rather Malaysia. The presence of mutual funds in Malaysia is still small except if you can call EPF, tabung Haji as those. If it is EPF, I am sure that their management fee charges are pretty small.

I was reading somewhere that only 14% of US trades are retail. The rest are funds (hedge or sovereign etc). Hence, when John Bogle are pushing hard on the index funds, he is basically saying why bother to pay more when all things are going to be averaged out anyway. Performances of the pasts does not necessarily tell us the future.

Disclaimer

The content here should serve as the opinion of the writer rather than as an advice to buy or sell. You should do your own research and/or seek expert's advice when doing your investments. Any decision that you made is your own and the author should not be held accountable.